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Class 12 Economics Project Solution for Final Exam
(A) Functions of Commercial Banks and the Central Bank
Ans: Functions of Commercial Banks:
Commercial banks generally perform the following functions—
(1) Collection of Savings: The main function of commercial banks is to accept deposits from the public. They collect money or savings from individuals, institutions, or business organizations and pay interest to the depositors.
(2) Supply of Loans: Commercial banks lend the money collected from the public to individuals or business organizations at a higher rate of interest.
Generally, commercial banks provide short-term loans, although sometimes they also provide long-term loans.
(3) Creation of Credit Money or Deposits: Commercial banks create credit money or deposits. Deposits are of two types—primary or cash deposits and secondary or derivative deposits. The deposits made by savers are called cash deposits. Banks create secondary or derivative deposits from these cash deposits. This creation of derivative deposits is called the creation of credit
money.
(4) Other Functions: Other functions of commercial banks include paying telephone bills and electricity bills of depositors, keeping valuable ornaments in safe custody, safeguarding documents, transferring money from one place to another, etc.
(B) Functions of the Central Bank (Reserve Bank of India)
Ans: The central bank generally performs the following functions—
(1) Issue of Paper Currency: The central bank has the authority to issue paper currency. This is the exclusive right of the central bank. At present, currency is issued according to the minimum reserve system. The Reserve Bank of India prints currency following this system. Under the minimum reserve system, a specific amount of gold and foreign exchange reserves must
be maintained.
(2) Bank of Banks: The central bank is the bank of banks. Commercial banks are required to keep a certain portion of their total deposits with the central bank. The central bank examines the accounts of commercial banks, provides loans to them, and settles inter-bank transactions and claims. Therefore, the central bank is considered the lender of last resort for commercial banks.
(3) Banker to the Government: The central bank acts as the banker to the government. In this capacity, it provides financial assistance to the government, gives financial advice, performs financial operations as the representative of the government, supervises government loans, and maintains accounts of government revenue and expenditure.
(4) Control of Credit: The central bank regulates the credit system of the country. By applying various control measures, the central bank reduces the rate of inflation.
(5) Developmental Functions: It is the responsibility of the central bank to develop the country’s banking system. By linking the credit system with production, the central bank helps increase the rate of economic development.
It also provides long-term loans to the agricultural and industrial sectors.
(6) Other Functions: Other important functions of the central bank include managing and controlling foreign exchange, collecting economic data of the country, and representing the government in the World Bank and other international financial institutions.
(C) Government Budget
Ans: A government budget is a financial statement prepared by the government for the coming year for development in different sectors. The components of the government budget are mainly two—Revenue Budget andCapital Budget. Tax revenue and non-tax revenue are the two main sources of the government budget. Tax revenue includes both direct and indirect taxes. The main objectives of preparing the government budget are to reduce poverty, remove unemployment, establish social justice, and maintain price stability. A government budget may be of different types such as surplus budget, deficit budget, and balanced budget. Government expenditure in the budget has several heads, such as—
(a) Plan Expenditure
(b) Non-plan Expenditure
(c) Revenue Expenditure and Capital Expenditure
(d) Developmental Expenditure and Non-developmental Expenditure. If the total revenue in a government budget is greater than the total expenditure, it is called a surplus budget. If the total expenditure is greater than the total revenue, it is called a deficit
budget. For the development of a country, it is very important to formulate a planned and well-considered budget. However, the difference in the heads of the budget may also depend on the political ideology of the ruling party.
(D) Poverty in India
Ans: Poverty is a financial condition in which a section of people in society, despite having no fault of their own, are deprived of the ability to purchase the minimum necessities required for survival. Poverty is of two types—
(a) Absolute Poverty and
(b) Relative Poverty.
The main causes of poverty in India are—
(a) Population Explosion: One of the major causes of poverty in India is excessive population growth. The production of food grains has not increased in proportion to population growth. As a result, poverty has increased.
(b) Vicious Cycle of Poverty: Due to low income, lack of capital, etc., among Indian people, poverty continues from generation to generation and persists in a cyclical manner.
(c) Unemployment Problem: In India, unemployment has taken a serious form. Because of lack of capital or technical education, many unemployed people cannot engage in any work. As a result, poverty has become more severe.
(d) Low Productivity: In the agricultural sector of India, advanced technology has not been widely used. As a result, the rate of increase in production has not risen according to requirements, leading to increased poverty.
(e) Defects in Planning: There are many shortcomings in implementing India’s Five-Year Plans in practice. Many development schemes remain only on paper, depriving the common people of the benefits of planning. This affects the country’s economy, and people cannot come out of the vicious cycle of poverty.
(f) Rising Price Level: The high rate of price rise in the Indian economy reduces the real income of low-income people, thereby aggravating the problem of poverty. To remove poverty, the Government of India has undertaken various schemes, such as—
(a) Food for Work Programme: This programme was introduced in the 1970s. Under this scheme, workers who provide labour are given a certain quantity of food free of cost by the government along with wages.
(b) National Rural Employment Guarantee Act: Under this Act, those willing to work at minimum wages can participate in the scheme wherever it is implemented. The programme is shared between the central and state governments in a 50:50 ratio. It is implemented through the District Rural Development Agency (DRDA).
(c) Annapurna Scheme: This scheme was introduced in the year 2000. Under this scheme, elderly persons who are not covered under the old-age pension scheme are provided 10 kilograms of food grains per month free of cost.
(d) Employment Assurance Scheme: Through this scheme, efforts are made to increase the income of people living below the poverty line in rural areas by providing opportunities for manual labour.
(e) Jawahar Gram Samridhi Yojana: This scheme was introduced in 1989 to provide employment opportunities to families living below the poverty line in rural areas.
(E) Employment and Other Problems in India
Ans: India is a developing country. Although it has many problems, unemployment is one of the major ones. At present, unemployment in India has become a serious issue. There are several causes for this, such as—
(a) Defective Education System: The existing education system in India is highly defective. It mainly emphasizes traditional education but does not give adequate importance to technical education. As a result, many educated youths remain unemployed and become a burden on their families, society, and the country.
(b) Slow Industrial Development: India has not progressed sufficiently in the industrial sector. Moreover, many industries that have been established are deprived of modernization. As a result, adequate employment opportunities have not been created.
(c) Backwardness of Agriculture: A large number of people in India depend on agriculture. Agricultural methods are also traditional. Therefore, even though demand increases, production does not increase sufficiently, leading to unemployment.
(d) Population Explosion: The population of India is increasing at more than 2 percent per year. Employment has not increased at the same rate. As a result, unemployment is becoming more severe every year.
(e) Low Rate of Progress: The rate of economic progress in India is not satisfactory. Because of the low growth rate, employment generation has been hindered. India is a vast country, and about 80 percent of its people live in rural areas. The economic problems of rural areas are somewhat different from those of urban areas. To solve the problems in rural India, the following suggestions may be made—
(a) Modernization of Agriculture: Agricultural methods in India are outdated. Farmers still cultivate land using traditional ploughs. As a result, agricultural production has not increased significantly. Therefore, modern technology should be used in agriculture to increase production. Along with food grains, emphasis should also be given to the production of commercial crops.
(b) Development of Allied Sectors: Along with the use of modern technology in agriculture, allied sectors should also be developed. These include poultry farming, cattle rearing, fish farming, and dairy production.
(c) Development of Small-scale Industries: To solve the unemployment problem in India, importance should be given to establishing small-scale industries in rural areas. For this, the government should provide financial assistance and training.
(d) Self-Help Groups and Microfinance: To create opportunities for self-employment, encouragement should be given for forming self-help groups. The government should provide microfinance facilities to these self-help groups.
